Over decades, I’ve attempted to serve more than 2,000 millionaires. Many are the proverbial “millionaire next door.” They are firefighters, history teachers and other “ordinary” people who didn’t start out as millionaires. Instead, they trimmed their lifestyle so they had money to invest. Then they selected an advisor who would help them achieve their goals.
I called them “ordinary,” but they are not. They are highly disciplined. They learn from most transactions and we learned a lot from them. Our team has developed ten success enhancing suggestions we learned serving those millionaires. Some of these realities may sound blunt, but you’ll probably do better if you act as if they are true.
- Successful people learn from unpleasant truths. They are more interested in getting a great result than feeling good about what may be false assumptions or ineffective conduct or sloppy thinking.
- In a real estate purchase contract, the seller has the obligation to sell for the contract price. But the buyer has the opportunity to buy for that price. The seller cannot cancel if a higher offer comes in. The buyer can decline essentially for any reason within the contract timelines. That gives the buyer dramatically more options to explore.
- There are usually at least two great options on the market at any time. Try to find them.
- The other side has the right to be confused, conflicted, misinformed, rude, unfair, or wrong. Our job is not to teach them. Instead, the relevant criterion is: can this transaction be profitable for our side? This perspective enables you to recognize the other side’s blunder as an opportunity for you.
- Some cautious people hope to limit risk and avoid a poor choice by researching a property extensively before putting the property in escrow. They create unnecessary risk which other, more savvy, investors exploit. Smarter buyers tie up the property quickly and then investigate. Once a competitor has the asset in escrow, your analysis is irrelevant. (See #2)
- The buyer is acquiring the property, the sticks, bricks, stucco, windows, and roof. The buyer has no obligation to keep the seller’s policies, management, or blunders. (See #4)
- Successful buyers buy. Decide comes from the root word meaning “cut off.” They know they will pass on some appealing options. They have the discipline to pursue an option that moves them closer to their goal. They keep their eyes on the prize and avoid chasing other bright, shiny objects.
- Buyers win when they close. There is no prize for finding good opportunities and fumbling them. If you love research and hate to decide, then work as a researcher for a buyer.
- No one is a mind reader. Speculating, without information, about others’ options and motivation is probably a waste of your time.
- If you think your expert’s expertise, information, and insight is not better than your own, fire them. If you don’t trust your expert, you’re wasting your time and theirs. You are blowing opportunities by second-guessing your expert.
Know Your Values and Goals
Smart apartment investing decisions start with knowing your values and goals. When you know your values and goals, you’re more likely to make good decisions and less likely to make a decision you’ll regret later.
There’s another benefit. You or your broker may learn of a price reduction or rent increase or increased seller motivation or some other important fact. Such opportunities are fleeting, and you must act quickly to seize them. You can decide more quickly and with less analysis if you already know what’s important.
Many investing guides encourage you to articulate your investment goals. That’s important. But it’s equally important to know who you want to be and the legacy you want to leave. I encourage our clients to identify their values first and then create their investment goals.
What are Your Values?
I have done several values clarification exercises over the years. Usually, you must choose one value from each of a series of pairs of values. One pair might be health and wealth. Another might be being great at work and being a great spouse. At the end of the exercise, you can examine the profile of what you think is important. That’s fascinating, but the exercise isn’t over.
Ideally, the way you spend your money and your time will match up well with your stated values. Usually there’s a discrepancy. If you want your stated values and lived values to match up, you must change something. Then you can make investment decisions that reflect your values.
What Are Your Apartment Investing Goals?
Every investor has a unique situation and investing goals, but those goals tend to fall into one of the following five categories. Your goals may change when your situation changes.
- You may invest to build wealth. If this is your goal, you’ll seek properties you can renovate to add value. Then you’ll sell the property and move on.
- You may invest to maximize cash flow. This goal is often for people who are at least retirement age and content with their net worth. They’ve built a substantial inheritance, and they may have been deferring gratification for several decades. The extra cash will enable them to do things they’ve always wanted to do but put off.
- You may invest to achieve steady cash flow with almost no management. At “retirement age,” many households move equity out of apartments into buildings leased by a national business tenant with bond-rated credit.
- You may invest for pride of ownership. Some investors buy rental properties that demonstrate their wealth.
- You may want to invest in a “fallback property.” You could live there yourself if your circumstances crumble, or you could rent to your sister at a discount if she separated from her husband.
It takes time and mental energy to clarify your values and investment goals, but it’s worth the effort. When you know what’s important to you and your investment goals, you can make better investment decisions more quickly.
Terry Moore, CCIM is an investment real estate broker with a proven history of success in creating value, 1031 (tax deferred) exchanges, and building wealth through apartment investments. He has taught at UCSD, National University’s MBA program, the Appraisal Institute, SD County Tax Assessor, California Association of Realtors and is a National Certified Commercial Investment Member. He is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. For more information, contact Terry at [email protected], call 619-497-6424 (Direct), 619-889-1031 (Mobile) or visit www.SanDiegoApartmentBroker.com. (License #0091851).